IN THE MATTER OF THE REHABILITATION OF INDEMNITY INSURANCE CORPORATION, RRG.
Date Submitted: December 5, 2013
W. Harding Drane, Jr., Jessica M. Willey, DELAWARE DEPARTMENT OF JUSTICE, Wilmington, Delaware; Attorneys for Petitioner State of Delaware.
Michael W. Teichman, Michael W. Arrington, James D. Nutter, Elio Battista, Jr., PARKOWSKI, GUERKE & SWAYZE, P.A., Wilmington, Delaware; Attorneys for Respondent Indemnity Insurance Corporation, RRG.
Theodore A. Kittila, GREENHILL LAW GROUP, LLC, Wilmington, Delaware; Attorney for non-party Jeffrey B. Cohen.
LASTER, Vice Chancellor.
Indemnity Insurance Corporation, RRG ("Indemnity") has filed a motion to hold Jeffrey B. Cohen in contempt of an order entered on November 1, 2013 (the "November 1 Order") and to sanction him for his violations. The motion is granted.
I. FACTUAL BACKGROUND
The facts for purposes of Indemnity's motion were established at an evidentiary hearing held on December 5, 2013. During the hearing, the parties introduced documentary evidence and presented live witness testimony. In addition, the court has held three earlier evidentiary hearings in this matter on other motions. At two of the earlier hearings, the parties introduced documentary evidence and presented live witness testimony. At the third, which was held on an emergency basis, Indemnity submitted documentary evidence and provided witness testimony by affidavit, brought the affiant witnesses to the hearing, and was prepared to present their testimony live, but the court opted to dispense with live testimony because of the expedited nature of the hearing. In connection with each of these evidentiary hearings, the court has made factual findings.
A. The Seizure Petition
On May 30, 2013, the Insurance Commissioner of the State of Delaware (the "Commissioner") filed a Verified Petition for Entry of Confidential Seizure and Injunction Order (the "Seizure Petition"). The Commissioner has the power to file such a petition if the Commissioner believes (i) there exists "[a]ny ground that would justify a court order for a formal delinquency proceeding against an insurer" and (ii) "that the interests of policyholders, creditors or the public will be endangered by delay." 18 Del. C. § 5943(a). The governing statute authorizes this court to issue an order "forthwith, ex parte and without a hearing." Id. The resulting order may authorize the Commissioner
to take possession and control of all or a part of the property, books, accounts, documents and other records of an insurer and of the premises occupied by it for the transaction of its business, and until further order of the Court enjoin the insurer and its officers, managers, agents and employees from disposition of its property and from transaction of its business except with the written consent of the Commissioner.
Id. The statute provides that an insurer subject to an ex parte order "may petition the Court at any time after the issuance of such order for a hearing and review of the order, and the Court shall grant such a hearing and review within 10 days of the filing of such petition." Id. § 5943(d).
The Seizure Petition was supported by documentary evidence and averred that Indemnity was in a precarious financial position due to multiple acts of fraud by Cohen. After reviewing the Seizure Petition, the court entered an order granting the relief requested and authorizing the Commissioner to take control of the business and assets of Indemnity. Dkt. 4 (the "Seizure Order").
On July 5, 2013, Indemnity petitioned for review of the Seizure Order. As required by statute, the court scheduled a hearing on the petition for July 15. The court also held a telephonic status conference with the parties on July 10. After that status conference, the parties reached an agreement to defer the July 15 hearing.
B. The Liquidation Petition
Using the authority conferred by the Seizure Order, the Commissioner conducted a preliminary examination of Indemnity. On July 26, 2013, the Commissioner filed a Verified Petition for Entry of Liquidation and Injunction Order (the "Liquidation Petition"), which was supported by extensive documentary evidence. The Liquidation Petition expanded on the allegations in the Seizure Petition and sought authority to liquidate Indemnity in light of (i) acts of fraud by Cohen and (ii) Indemnity's unsound financial condition. Indemnity's counsel subsequently represented that Indemnity does not have any basis to dispute the truth of the averments in the Liquidation Petition. Dkt. 73 at 10.
1. The Susquehanna Bank Fraud
The Liquidation Petition described in detail an effort by Cohen to defraud the Commissioner using false documents purporting to be from Susquehanna Bank. As part of their investigation into Indemnity's safety and soundness, the Commissioner's investigators questioned Cohen about Indemnity's assets. In response to these inquiries, Cohen represented that Indemnity held $5.1 million in unencumbered cash in an account at Susquehanna Bank. Cohen further represented that he had provided that money to Indemnity as a capital contribution.
To confirm the account balance the investigators asked Cohen for a contact at Susquehanna Bank. Cohen initially provided the investigators with an email address purportedly belonging to a Susquehanna Bank employee named Nicole Bliss. When the investigators pressed Cohen for a physical address, he asked them to use the email address on the grounds that Susquehanna Bank charged an exorbitant fee for providing confirmations via physical mail. When the investigators insisted on a physical address, Cohen finally gave them a P.O. Box that purportedly belonged to Susquehanna Bank.
The investigators sent a confirmation form to the P.O. Box that Cohen provided, and they received a fax confirming the account balance and its ownership. To follow up on the confirmation, the investigators tried to call Bliss at the phone number listed on the fax. That number, however, connected to a voicemail box for "James Berg of Susquehanna." Confused, the investigators looked up Bliss's phone number on the internet and contacted her there. Bliss denied having seen the form that the investigators had sent to the P.O. Box, and she asked them to resend the form by email. The investigators sent the form to the email address that Cohen had provided for Bliss.
The investigators did not receive a response to the email sent to Bliss at the address Cohen had provided. They eventually followed up with Bliss by phone, and she told them that she had not received the email. She provided the investigators with her correct email address, which differed from the address that Cohen had provided. The investigators sent a copy of the form to the correct email address, and Bliss confirmed that she had never seen the form and had certainly not completed it or faxed it to the investigators.
Further investigation revealed the following:
• The P.O. Box that Cohen claimed belonged to Susquehanna Bank was registered to Cohen.
• The fax number that transmitted the fax to the investigators did not belong to Susquehanna Bank.
• The signature on the fax was not Bliss's, and she did not authorize anyone to sign her name. • There is no "James Berg" at Susquehanna Bank.
• The phone number listed for Bliss on the fax that the investigators received is a VoIP number that does not belong to Susquehanna ...